Takeaways:
- Disintermediation is the future; look no further than Uber, Airbnb, Wealthfront and E-Trade as evidence.
- The mortgage industry is largely built on people who either sell or process; not as many would be needed if we streamline the process.
- Either we change the status quo or somebody else will.
When Expedia launched in 1996, it became one of the first major disintermediation successes on the Internet, and the mortgage industry took note.
Why couldn’t getting a home loan be as easy? Imagine, you answer a few questions — and voila — a list of real loan approvals from competing banks. Pick one, and 30 minutes later your loan closes.
We can argue whether it’s a good thing — the ability for a consumer to become legally committed to such a large liability so quickly and easily.
But I suspect that if we could deliver on this vision, perhaps we would be intelligent enough to put in checkpoints to prevent a consumer from accidentally committing themselves to something that isn’t good for them.
Now back to today. We live in an economy that’s starting to be dominated by the same idea. Look no further than Uber, Airbnb, Wealthfront and E-Trade as evidence.
Disintermediation is the future, but can it be the future of mortgages?
Consumers aren’t ready to do their own loan
In the words of Taylor Swift, “That’s what people say.” But I don’t buy it. I say consumers don’t have the tools to shop, apply and close a mortgage easily yet, but if they did, this would be the norm.
Consider Expedia turning you and me into airline agents or TurboTax empowering us to do our own taxes. And what about Wealthfront, which invests your money via robo-advisers?
Humans are still needed, just not as many
The mortgage industry is largely built on people who either sell or process. These are loan officers, processors, funders and the like. If getting a home loan were this easy, the reality is that many of these jobs would disappear, and many of my friends would be looking for new careers.
To be clear, I’m not saying loan officers aren’t a valuable part of the process. All I’m saying is when technology increases efficiency, the need for human labor drops. This fact has been true since gunpowder, the cotton gin and automated toll booths were invented.
Change is inevitable. Either we change the status quo or somebody else will. It’s time we start pushing this vision forward with discussion and, more importantly, real action to produce real results for the consumer’s benefit.
How could we make this happen?
There are 10 key innovations needed to make getting a home loan as easy as booking a plane ticket. Below I’ll describe the first five, and I’ll cover the last five in Part 2.
1. Instant IRS income verification
The IRS operates IVES (Income Verification Express Service), a service used by mortgage lenders and other creditors to deliver W-2 and 1099 transcripts within two business days.
That’s much too long. It needs to be returned within seconds. It’s already possible if you request your own tax transcripts.
2. Better income reporting
How much you’re paid is important, but how it’s broken down is equally as vital. Lenders consider your base salary differently than say, your overtime, commission or bonus. This calculation will affect your total compensation and, therefore, your ability to get approved.
Most consumers are already paid through payroll systems such as ADP and Paychex. The data is there, and while some automation has occurred, it’s still not widely utilized.
3. Reissue of credit reports
If you apply with Lender A, they’ll run a credit report on you. If you then decide to apply with Lender B and C, they’ll also have to run their own credit report and pay a new fee for it.
This action costs lenders, which in turn costs consumers, and thereby makes it expensive for a consumer to shop many lenders at once.
Imagine, if you search for a loan from 20 lenders, and each lender had to pay for a credit report. One search would cost $240 (assuming $12 per credit report). If another 99 consumers searched, then the cost to one lender is now $1,200. That makes it economically unfeasible.
Credit report reissues started in 2006 with Experian and Equifax when they reinterpreted end user disclosure laws within the FCRA (Fair Credit Reporting Act).
TransUnion later joined the feast. A solution is to remove reissues and continue joint use as it was prior to 2006; one credit report for all lenders whom the consumer chooses.
4. E-signatures for all documents
While the majority of documents can be signed electronically, there are still documents, such as the Borrower’s Certification & Authorization, that require a wet signature.
Further, not all counties accept electronic signatures; therefore, wet signatures are still common practice for loans across the country. Nationwide acceptance of electronic signatures is required.
5. Reduce paperwork
If you’re an Inman reader, you know what a mortgage loan signing looks like. There’s just too much paper required to be signed. It’s the “cover your ass” rule.
Too much paperwork is a result of the need to properly disclose to inform the borrower of everything they are getting themselves into.
After all, a mortgage loan is complex. But, if the real goal is to help the consumer understand their loan, isn’t adding to the paper stack counterintuitive? Doesn’t that make it more complicated?
We could make the process more transparent by building disclosures and understanding into the process and presenting information in a new way, not just more of it.
TRID, the TILA-RESPA Integrated Disclosure rule taking effect Oct. 3, 2015, is a good start. It combines the two entities’ disclosure requirements into one. Where else can we save paper and the environment?
Even just the first five requirements is a tall order and certainly won’t happen this year or next. But what about 2020 — or even 2025? Time has proven that better, faster and cheaper is the future. The question is: Will you help lead us forward?
Stay tuned tomorrow for Part 2, which will cover the last five innovations needed to make getting a home loan as easy as booking a plane ticket.
Tim Nguyen is co-founder and CEO at BeSmartee, a do-it-yourself mortgage marketplace where you can get a home loan almost as easy as booking a plane ticket online.